v3.26.1
Income Taxes
 6 Months Ended
Jun. 30, 2026
Income Taxes [Abstract]  
Income Taxes

8.       Income Taxes

 

The Corporation files income tax returns in the U.S. federal jurisdiction, the Commonwealth of Pennsylvania, and the States of Maryland, Florida and New Jersey. Income taxes paid for federal were $1,450,000 for the quarter and six months ended June 30, 2026 and $2,420,000 for the quarter and six months ended June 30, 2025. No state income taxes were paid for the three months or six months ended June 30, 2026 and 2025.

 

The ability to realize the benefit of deferred tax assets is dependent upon a number of factors, including the generation of future taxable income, the ability to carry back losses to recover taxes paid in previous years, the ability to offset capital losses with capital gains, the reversal of deferred tax liabilities, and certain tax planning strategies. Realization of deferred tax assets associated with net operating loss (NOL) carryforwards is dependent upon generating sufficient taxable income prior to their expiration. Further, in the case of acquisitions, it is impacted by Internal Revenue Code Section 382, which limits the use of NOLs to an annual amount based on the company’s stock immediately before the ownership change, multiplied by the applicable federal long-term tax interest rate.

 

At June 30, 2026, the Corporation had federal NOL carryforwards of approximately $60,655,000, with certain amounts that expire at various times from 2033 to 2037. The Corporation also had state NOL carryforwards of $57,540,000, with certain amounts that expire at various times from 2034 to 2037. The valuation allowance on net deferred assets results in the NOL carryforwards being carried at an amount that management expects to realize.

 

U.S. generally accepted accounting principles prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

 

There is currently no liability for uncertain tax positions and are no known unrecognized tax benefits. The Corporation recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the Consolidated Statements of Income. With few exceptions, the Corporation is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years before 2022.

 

Income tax expense for the three and six months ended June 30, 2026 and 2025 was as follows (in thousands):

 

    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2026   2025   2026   2025
    $   $   $   $
Current:                                
Federal     704       1,101       778       2,022  
State     130       4       135       4  
Total current     834       1,105       913       2,026  
Deferred tax expense:                                
Federal     578       275       1,488       336  
State     (77 )     —       (44 )     —  
Total deferred     501       275       1,444       336  
Income tax expense     1,335       1,380       2,357       2,362  

 

Components of the Corporation’s net deferred tax position at June 30, 2026 and December 31, 2025 are as follows (in thousands):

 

    2026   2025
    $   $
         
Deferred tax assets:                
Allowance for credit losses     4,043       3,546  
Allowance for off-balance sheet extensions of credit     190       284  
Interest on nonaccrual loans     241       189  
Purchase accounting - loans     1,103       —  
Operating lease liability     589       524  
Net operating loss carryforwards     13,078       —  
Net unrealized losses on securities available for sale     6,069       5,823  
Net unrealized losses on derivatives     —       62  
Other     90       53  
Total deferred tax assets     25,403       10,481  
                 
Deferred tax liabilities:                
Premises and equipment     (2,087 )     (2,104 )
Right of use asset     (579 )     (516 )
Mortgage servicing rights     (779 )     (671 )
Discount on investment securities     (1,755 )     (1,326 )
Purchase accounting - core deposit intangible     (569 )     —  
Purchase accounting - time deposits     (38 )     —  
Net unrealized gains on derivatives     (548 )     —  
Other     (12 )     (20 )
Total deferred tax liabilities     (6,367 )     (4,637 )
Net deferred tax assets before valuation allowance     19,036       5,844  
Valuation allowance     (7,028 )     —  
Net deferred tax assets     12,008       5,844